Foreign Patent Rights May Be In Trouble As Supreme Court Mulls Printer-Cartridge Case

The power of U.S. companies to use patent law to prevent their exported products from reentering this country could be in danger if the skepticism of justices at U.S. Supreme Court arguments today is any indication.

The question in Impression Products v. Lexmark International is whether the big printer manufacturer can prevent Impression Products from buying used Lexmark cartridges overseas, refill them with ink and sell them in the U.S. The implications for other exported products, from microchips to pharmaceuticals, are big: At stake is the role of patent law in enforcing price discrimination, or the practice of selling the same product in different markets at different prices to maximize revenue overall.

The problem for Lexmark is the law has been hostile to post-sale conditions for hundreds of years, a prejudice best expressed in the first-sale doctrine preventing copyright owners from prohibiting the resale of books and other protected properties (without which libraries would be in trouble).

A similar doctrine called patent exhaustion says patent owners can't exercise control over their products after the first "authorized" sale. They can attach conditions to that sale, including who can buy it from that purchaser and what the purchaser can do with it. But if they sell the product outright the patent rights are said to be exhausted.

Lexmark sold its printer cartridges overseas with labels saying they were restricted to a single use. Impression products bought them anyway from a reseller and imported them back into the U.S. Lexmark argued, and the D.C. Circuit Court of Appeals agreed, that this violated U.S. patent laws, under which patent owners can prohibit the importation of their patented products.

The U.S. government is on the other side and in oral arguments today several justices appeared skeptical as well. Justice Stephen Breyer, the court's patent expert, said "any monopolist, including a patent monopolist, would love to be able to go to each buyer separately and extract from each buyer and user the maximum amount he would pay for that particular item."

"Dentists would pay more for gold perhaps than someone who wants to use gold for some other thing. Okay? They'd like that. But by and large, that's forbidden under many laws, even though it does mean slightly restricted output, and it also means a lower profit for the monopolist," Breyer said. "This precedent is very hard for you to get around."

Malcolm Stewart, arguing for the government, said U.S. patent owners can insert a clause in the sale contract prohibiting foreign buyers from reimporting their products but enforcement would be up to the seller.

That would be a problem in the case of companies like Impression Products, Trela said, since there was no contract between the companies to enforce. Other companies including pharmaceutical manufacturers and cellphone chipmaker Qualcomm have expressed concern that a ruling for Impression Products will make it harder for them to protect their intellectual property in the U.S.

Tough luck, said Andrew Pincus of Mayer Brown, arguing for Impression Products. What Lexmark wants is for the court to read international price discrimination into the patent law and it isn't there, he said. While the Federal Circuit, the court of appeals for all patent disputes, has ruled against international patent exhaustion for decades it isn't actually in the statute and the Supreme Court should extinguish the idea, he said.